During the meeting with representatives of commercial banks sector the Bank Guarantee Fund has presented details of methodology for calculating the minimum requirement for own funds and eligible liabilities (MREL).
A preferred strategy envisaged in a resolution plan, is a crucial element that determines the amount of MREL required by the Bank Guarantee Fund.
Where the BFG concludes that liquidation under normal insolvency proceedings is feasible and credible MREL is determined at the level of the binding capital requirements and there will be no additional charges for an institution.
Where the preferred resolution strategy indicated in the plan is write-down or conversion of liabilities, MREL should be determined at the level which allows to cover all losses suffered by the institution under resolution and to recapitalize it up to the amount sufficient to fulfil the capital requirements for authorization and to restore market confidence, with regards to its estimated size after the use of resolution tools.
Should entity be resolved via a sale of business tool, the determined the MREL should be sufficient to absorb losses of the institution under resolution and to cover additional capital needs in the acquiring entity due to transfer of assets and liabilities form the failed institution.
The Bank Guarantee Fund has also presented a proposal of a transitional period during which entities will be obliged to fulfil requirement. Banks will have the time to attain the defined level of the MREL by 1 January 2023. Under legitimate circumstances, the Fund may allow a different transitional period for a given entity.
Bank Guarantee Fund informed also the recommended structure of MREL eligible instruments. Having in mind the „no creditor worse off” principle and the necessity to provide internal sources of financing resolution costs in a way that will not adversely impact feasibility or creditworthiness of a resolution plan, the Fund expects that:
- the MREL will consist of own funds and subordinated debt,
- debt instruments included in the MREL shall be purchased by professional clients, that is to say, they will not be offered to retail clients and
- a nominal value per unit of a MREL eligible debt instrument shall amount at least 100 000 EUR.
The above presented approach of the Fund to the MREL calculation is of a general nature and can be adjusted to particular entities.
Detailed information on the individually determined the MREL will be shared with institutions and included in summaries of resolution plans once the BFG Management Board approves them.
The above presented approach of the Fund to the calculation of the MREL will be subject to a review after the entry into force of the package of draft amendments to the BRRD/CRR/CRD IV.
